Recent Posts

Yesterday, Donald Tsang, the Chief Executive of Hong Kong warned that he has seen the red warning light flashing for the Hong Kong property market.

Certainly, given the government’s inability to guide the property market into the “right” direction (meaning the direction the government wants"), no one is going to listen to Donald Tsang about his vision even though he might be right. The government, quite simply, has lost almost all of its credibility in delivering stable and affordable housing (although whether this is indeed the government’s mandate is quite questionable of course).

He might be unfairly judged in this regard, because most types of intervention in the real estate market do not work very well. Or if they do work, they tend to go overboard. In Hong Kong, there is absolutely nothing the government can do because of the linked-exchange rate system, which guarantees increase in liquidity in the banking system as money flows in, and draining of liquidity as money flows away, while the exchange rate with US dollar remains pretty much constant. So any intervention which does not involve changes in the linked-exchange rate system will not really work.

One really dense politician asked Donald Tsang how the government ensures that in the event that the property bubble bursts, the property market will face a soft-landing. Well to be honest, can you expect a government which cannot stop property prices from rising too much be able to stop property prices from dropping too fast if that happens?

Warning aside, which no one is listening, any bearish arguments coming out from anyone on the property market will irritate people who think that a correction in Hong Kong property market is simply unthinkable. However, these folks will certainly cheer about the effort Li Ka-shing is paying in boosting sentiment, which including buying land in the last land auction as well as buying shares of his own company. Today, he said once again that that inflation is coming, so buying real estate for your own uses is right.

Yet there is something truly remarkable about these confidence boosting activities. One land acquisition which only took some HK$662 million and one share purchase which only took some HK$12 million can be taken as a signal that Mr. Li is very confident, while everyone is neglecting the fact that Cheung Kong (1.HK) has raised a lot of cash both from selling off businesses and selling off apartments, and the amount used in these confidence boosting activities is just tiny compared with the amount they cashed in.

If there is anyone who is really serious about boosting confidence, that should be Lee Shau-kee. In the 2009 Annual result, his Henderson land (12.HK) announced that they would issue a warrant for the shareholders, which says that shareholders can exercise that and purchase new shares of Henderson Land at the price of HK$58 per share.

Today, the share price closed at HK$51.35, and it’s now only days away from the expiry date of the warrant.

At the day of the announcement of the issuance of the warrant, some analysts asked the management “if the company wants to raise money, why not a share placement, or right issue?”. The management responded with some loaded of nonsense that I don’t want to repeat here.

In the final weeks of the life of this warrant, in hope that it will get exercised by shareholders, the chairman Lee Shau-kee did some truly remarkable things, including buying the shares for numerous times, and, guess what, exercising the warrants at HK$58 per share price when the shares were traded at much lower than the exercise prices.

Unfortunately, no one man can really fight the market alone and win. The end result is that the warrants become almost worthless (and soon will be worthless). Lee Shau-kee has made a fool of himself by purchasing the shares at HK$58 while it can now be bought at a little more than HK$51, and his warrants will not be exercised by anyone except himself anyway. But at least, he has done something truly heroic to show that he is ultra confident in his own company’s future.